In an effort to bring local control and public ownership to the utility that serves them, a consortium of Montana municipalities on Thursday offered to acquire 100% of NorthWestern Corp.'s outstanding common stock. In response, NorthWestern's board of directors said that while it does not comment on "rumors," it has concluded that the "informal proposal" is not in the best interests of the company and its stockholders.
Together as a non-profit corporation called Montana Public Power Inc. (MPPI), the municipalities are offering $32.50 per share in cash for a total transaction value of $2 billion, which includes the assumption of $825 million of NorthWestern's debt. The group hopes to have the deal completed by the end of the year.
After the consortium's privately submitted proposal to NorthWestern's board was rejected last Friday, MPPI said it had no choice but to make its intentions public. In the letter sent to NorthWestern's board of directors Thursday, MPPI said its offer represents a 17% premium to NorthWestern's unaffected closing stock price on April 28, the day before MPPI's intentions to purchase NorthWestern were made public (see NGI, May 9).
NorthWestern's board said that if it receives a formal proposal, it will review such a proposal consistent with its fiduciary responsibilities.
"NorthWestern has in the past three years taken steps to stabilize the company by focusing on our electric and gas utility operations and substantially reducing our debt burden," said Michael J. Hanson, NorthWestern's CEO. "Our improving capital structure and operating performance enables us to continue to invest in our utility infrastructure. Our long-term commitment remains to be a reliable and affordable provider of energy services to our 617,000 customers in Montana, South Dakota and Nebraska while providing a competitive return to our shareholders."
The consortium said the offer is also 22.4 times NorthWestern's projected earnings per share for 2005, based on Wall Street consensus forecasts, and represents a very significant premium to the value of $17.61- $22.39 per share ascribed to NorthWestern by its own financial advisor in NorthWestern's second amended and restated disclosure statement dated Aug. 18, 2004.
"Bringing NorthWestern's utility operations under local control is necessary to ensure that our communities will have the highest quality utility services at reasonable prices," said Mike Kadas, chairman of MPPI and the Mayor of Missoula, MT. "Our plan to achieve this includes investing in the utility's infrastructure to help ensure the reliability of the system, an area that we feel NorthWestern has neglected in recent years due to its limited financial resources."
Kadas added that MPPI intends to retain the current NorthWestern workforce and plans to ensure that the same people who serve customers today will serve them tomorrow. He added that MPPI will continue to pay property taxes.
"In addition to serving the best interest of our citizens, this offer provides compelling value to NorthWestern's shareholders," Kadas noted. "We would like to enter into constructive and good-faith discussions with NorthWestern immediately, with the goal of finalizing an acquisition agreement as soon as possible."
Under the terms of the offer, MPPI said it has agreed to sell the non-Montana assets of NorthWestern to South Dakota Power Co. (SDP), which is a South Dakota non-profit corporation that was formed for the purpose of acquiring these assets.
"We intend to finance the South Dakota operations separately, while continuing to manage them on a combined basis with the Montana businesses for the medium term," said Curt Bernard, chairman of SDP and the Mayor of Yankton, SD.
MPPI noted that, as an investor-owned utility, NorthWestern has experienced significant instability, culminating with its bankruptcy filing in 2003. As opposed to focusing on its core utility business, NorthWestern chose to invest in riskier noncore activities, primarily telecommunications, to the eventual detriment of its customers and shareholders. As a part of its plan to bring NorthWestern under public ownership, MPPI said it intends to concentrate "solely" on the core utility business and is committed to improving the reliability of NorthWestern's utility services by increasing investment in the utility's distribution systems.
NorthWestern is one of the largest providers of electricity and natural gas in the Upper Midwest and Northwest, serving more than 617,000 customers in Montana, South Dakota and Nebraska.
MPPI was reportedly formed in 2004 by the local Montana governments in the cities of Bozeman, Great Falls, Helena, Missoula and Butte.
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